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Crushpad Had Nothing Left to Spend

New owners find location in Sonoma, plan for stable growth

by Andrew Adams
The new owners of Crushpad, the small-lot, custom-crush operation that was sold at auction earlier this month, are setting up operations at a new location in an industrial area outside of Sonoma, Calif.
Sonoma, Calif.—The new owners of Crushpad assumed the company’s debt and assets at an auction expecting to walk into a “hornets’ nest” of angry clients and growers.

They then discovered just how much more work there would be to restructure the large custom-crush company. “There was essentially nothing,” Philip Von Burg said of the company’s balances.

Von Burg and Aaron Hayos’ CastleGate Capital Advisors formed a new entity, Structured Solutions, which bought Crushpad’s assets and debts for just under $655,000 at an auction earlier this month.

The auction was the final chapter in a tumultuous summer for Crushpad. While denying claims the company was going under, the firm’s former management also sought a new round of investment that never materialized.

Steve Ryan, who joined Crushpad in August 2011 and is now running the new company, said that on average clients would need to pay around $2,000 to finish their wine. He said the company has 689 clients, of whom 360 have wine in barrel and 80—including 16 new customers—have contracted for making wine in 2012.

Moving to new Sonoma location
Ryan said Crushpad will have a new name but that’s been a bit of a low priority as he’s coordinated moving all the production equipment and barrels from Sebastiani Winery to the new location in an industrial and winery area off Eighth Street East in Sonoma.

The company’s 850 barrels will remain at Sebastiani until the bottling line is set up at the new location. Once bottling is done, Ryan said the rest of the barrels would be moved. Crush will take place at Napa-based Bin to Bottle this vintage, but Ryan said it would be in-house starting 2013.

Von Burg said the goal is to work with the company’s existing clients, reassure growers about the coming vintage and plan for the future. While he declined to disclose the number, he said his company has made “a very expensive and sizeable” investment in paying the bills to move the company’s operations and its customers’ wine from Sebastiani to the new location. “We’re moving forward quickly and trying to communicate with the customers to try and answer their questions,” Von Burg said. “We’re looking for a little time and working with growers to secure fruit.”

Napa attorney Suzanne Truchard is representing a couple that owns a vineyard in Napa and is still waiting for payment for grapes purchased by Crushpad in 2011. She said trying to communicate with Crushpad as it was heading for auction was impossible. She is much happier working with the new owners. “I’m optimistic that they’ll work in good faith for us,” she said. “Honestly, in the grand scheme of things it would only benefit them to stay in the good graces of growers.”

Crushpad, founded in 2004 in San Francisco, quickly grew its customer base to more than 5,000 clients in 2009. The company capitalized on the dream of owning a winery by selling barrels of wine in the range of $10,000, depending on the quality of fruit, which was sourced from vineyards in the North Coast and Central Coast. Wealthy wine enthusiasts helped fuel the quick growth of the firm.

In addition to making wine for clients, the company also launched a commerce arm to provide distribution, sales and compliance services. A few brands launched through Crushpad went on to earn critical acclaim.

In 2009, as the economy slipped further into recession, the company moved from San Francisco to Napa, Calif., and opened a custom-crush operation in Bordeaux.

Victim of the recession
By April 2011, Crushpad brought in the owners of Chateau Lynch Bages as partners. The Cazes family would later buy out the entire Bordeaux business. That same month, Crushpad announced it was moving to a space in Sebastiani Winery in Sonoma, Calif. Bill Foley, owner of Foley Family Wines, which includes Sebastiani, became a major investor in the firm by chipping in a reported $3 million. When the move to Sonoma was announced, Crushpad management said it had received more than $15 million in funding since it launched.

Von Burg said the restructured Crushpad is again looking for investment, although Foley will not be part of the business. He said Foley had been extended an opportunity to stay involved but declined.

Back in early June, Von Burg said Crushpad had approached him as a potential investor. At the time, had reported that the company was running out of money and headed for closure, a claim Crushpad management denied through Twitter.

Von Burg said Crushpad didn’t react quickly enough to the recession. “The business plan was built on a high level of sales, and as sales eroded they didn’t make the proper adjustments on cost structure,” he said. “They continued to invest in the business without making changes to the business model.”

Ryan joined Crushpad last August along with a new CEO from Ascentia Wine Estates and before that, Peter Ekman, who has since resigned. Ryan said the plan was to “solidify things down to the core model to make quality wine and take care of clients.”

He said the plan worked and Crushpad turned a profit by the end of the year. But while the company was profitable, all that cash was being used to pay down the firm’s debt.

Changing the business model
“They were starting to do the right thing in the last year,” Von Burg said. “They brought in a new management team and were certainly going in the right direction, but it just became an issue of running out of runway. They didn’t have enough funding.”

Ryan said the future strategy is to move away from Crushpad’s old winemaking style of micro-lot fermentation in plastic bins to using tanks. He said that should improve the company’s overall winemaking quality as well as provide a “scalable” production strategy to react to the market. “Going forward we’re going to bring it up to the professional model and take it out of the garage, so to speak,” he said.

The Crushpad model can be successful, Ryan said, noting several businesses that have followed in the company’s path since it opened in 2004. Because they’re certain it can work, Ryan said the new owners knowingly stepped into the challenging process of rebuilding the company. He said he’s had some “painful conversations” with clients, but on the whole most are trying to make the best of the situation. “Everything could have been liquidated,” he said.

Carleton Briggs, an attorney in Santa Rosa, Calif., represents one client with three barrels of wine made through Crushpad and who had paid more than $10,000 for a barrel of 2012 wine. Briggs also has been advising about half a dozen other clients of the company.

He said it was a “pretty straightforward” process to obtain the finished barrels of wine, and that he and his client are amenable to paying more to secure the 2012 wine. “My understanding is the bank accounts they acquired were empty,” he said. “You can’t carry out contracts when the money is gone.”

He said his impression of the new owners is that they’re “acting in good faith” while trying to work out a fair resolution. Briggs noted the new owners bought, for a bargain, a large inventory of wine and other assets that they could have easily sold. Instead of cashing out, he said they appear to have done their best to reach out to former clients and keep the company running.

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Wine Industry Metrics
Off-Premise Sales » Month   12 Months  
October 2014 $570 million
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October 2013 $539 million $7,342 million
Direct-to-Consumer Shipments » Month   12 Months  
October 2014 $284 million
$1,751 million
October 2013 $240 million $1,556 million
Winery Job Index » Month   12 Months  
October 2014 139
October 2013 131 192
MORE » Released on 11.13.2014


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